Closing the Balances in The Variance Accounts at the End of the Year

Yohan Company has the following balances in its direct materials and direct labor variance accounts at year-end:

	Debit	Credit
Direct Materials Price Variance	$13,950
Direct Materials Usage Variance		$1,160
Direct Labor Rate Variance		890
Direct Labor Efficiency Variance	$12,760

Unadjusted Cost of Goods Sold equals $1,500,000, unadjusted Work in Process equals $316,000, and unadjusted Finished Goods equals $270,000.

Required:

1. Assume that the ending balances in the variance accounts are immaterial and prepare the journal entries to close them to Cost of Goods Sold. Note: Close the variances with a debit balance first. If an amount box does not require an entry, leave it blank or enter "0".

	Cost of Goods Sold	fill in the blank 112f11069f7ffeb_2	fill in the blank 112f11069f7ffeb_3
	Direct Materials Price Variance	fill in the blank 112f11069f7ffeb_5	fill in the blank 112f11069f7ffeb_6
	Direct Labor Efficiency Variance	fill in the blank 112f11069f7ffeb_8	fill in the blank 112f11069f7ffeb_9
	Close variances with debit balance
	Direct Materials Usage Variance	fill in the blank 112f11069f7ffeb_11	fill in the blank 112f11069f7ffeb_12
	Direct Labor Rate Variance	fill in the blank 112f11069f7ffeb_14	fill in the blank 112f11069f7ffeb_15
	Cost of Goods Sold	fill in the blank 112f11069f7ffeb_17	fill in the blank 112f11069f7ffeb_18
	Close variances with credit balance

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Companies must restate costs and inventories at the end of the year to actual cost. So, variance accounts must be closed out and their balances applied to Cost of Goods Sold (if immaterial) or prorated among Cost of Goods Sold, Work in Process, and Finished Goods.

What is the adjusted balance in Cost of Goods Sold after closing out the variances?

$fill in the blank b3f614fcefcd07b_1

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Companies must restate costs and inventories at the end of the year to actual cost. So, variance accounts must be closed out and their balances applied to Cost of Goods Sold (if immaterial) or prorated among Cost of Goods Sold, Work in Process, and Finished Goods.

2. What if any ending balance in a variance account that exceeds $12,000 is considered material? (a) Close the immaterial variance accounts to Cost of Goods Sold. (b) Prorate the largest of the labor variances among Cost of Goods Sold, Work in Process, and Finished Goods on the basis of prime costs in these accounts. (c) Prorate the largest of the material variances among Cost of Goods Sold, Work in Process, and Finished Goods on the basis of prime costs in these accounts. The prime cost in Cost of Goods Sold is $1,050,000, the prime cost in Work in Process is $163,600, and the prime cost in Finished Goods is $135,000. If an amount box does not require an entry, leave it blank or enter "0".

Note: Round all interim calculations to three decimal places, and round your final answers to the nearest dollar. Adjust credit entry for rounding to ensure debits equal credits in journal entry.

(a)	Direct Materials Usage Variance	fill in the blank 2092b1fe402cfa2_2	fill in the blank 2092b1fe402cfa2_3
	Direct Labor Rate Variance	fill in the blank 2092b1fe402cfa2_5	fill in the blank 2092b1fe402cfa2_6
	Cost of Goods Sold	fill in the blank 2092b1fe402cfa2_8	fill in the blank 2092b1fe402cfa2_9
(b)	Work in Process	fill in the blank 2092b1fe402cfa2_11	fill in the blank 2092b1fe402cfa2_12
	Finished Goods	fill in the blank 2092b1fe402cfa2_14	fill in the blank 2092b1fe402cfa2_15
	Cost of Goods Sold	fill in the blank 2092b1fe402cfa2_17	fill in the blank 2092b1fe402cfa2_18
	Direct Labor Efficiency Variance	fill in the blank 2092b1fe402cfa2_20	fill in the blank 2092b1fe402cfa2_21
(c)	Work in Process	fill in the blank 2092b1fe402cfa2_23	fill in the blank 2092b1fe402cfa2_24
	Finished Goods	fill in the blank 2092b1fe402cfa2_26	fill in the blank 2092b1fe402cfa2_27
	Cost of Goods Sold	fill in the blank 2092b1fe402cfa2_29	fill in the blank 2092b1fe402cfa2_30
	Direct Materials Price Variance	fill in the blank 2092b1fe402cfa2_32	fill in the blank 2092b1fe402cfa2_33

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See Cornerstone 9.5.

What are the adjusted balances in Work in Process, Finished Goods, and Cost of Goods Sold after closing out all variances?

	Adjusted balance
Work in Process	$fill in the blank b4a8d603a042ffa_1
Finished Goods	$fill in the blank b4a8d603a042ffa_2
Cost of Goods Sold	$fill in the blank b4a8d603a042ffa_3